The recent proposal of a 5% remittance tax in the "Big Beautiful Bill" has raised concerns among crypto users and privacy advocates. This tax, embedded in Section 112105 of the omnibus proposal, would impose a levy on every money transfer sent abroad by U.S. consumers. The measure aims to piggyback on existing Consumer Financial Protection Bureau (CFPB) rules, effectively turning remittance providers into tax collectors for the Treasury Department.
To avoid this tax, individuals must identify themselves as U.S. citizens or nationals and use providers that comply with Treasury's identification and verification requirements. Critics argue that this creates a "mass financial surveillance and control regime," penalizing Americans who wish to send funds internationally unless they utilize qualified providers based on yet-to-be-determined standards by the Treasury Department.
Coin Center highlights that while the current proposal does not apply to crypto transactions using self-hosted wallets, it could lead to attempts to force intermediaries to collect personal information about non-customers. The organization remains vigilant against such developments, recalling their opposition to similar rulemaking efforts in 2020.
The bill draws its definitions from CFPB's Regulation E Subpart B rules under the Electronic Fund Transfer Act (EFTA). It defines "remittance transfers" as electronic transfers from U.S. senders to recipients abroad and "remittance-transfer providers" as businesses executing these transfers regularly. Hosted wallet services, money service businesses (MSBs), and banks fall within this scope, but peer-to-peer transfers and self-custody software do not.
Questions arise regarding whether self-hosted wallet providers are considered remittance-transfer providers since they don't initiate or send customer funds. Hosted wallet providers like Coinbase or Kraken might be considered such providers if virtual currency is deemed "funds," although the CFPB has not made a definitive ruling on this matter.
Even if hosted wallets qualify as remittance-transfer providers, there is ambiguity over whether sending crypto through trusted intermediaries qualifies as taxable under current CFPB frameworks. A transaction may not be classified as a remittance if it lacks recipient name or foreign-country indicators at the time of transfer.
The proposed tax raises concerns about privacy inversion, regulatory arbitrage, and potential future regulatory crackdowns on hosted wallet providers akin to past midnight rulemaking attempts. Coin Center suggests including limitations in the bill to prevent its use as an excuse for infringing personal privacy or speech rights.
Despite these concerns, Coin Center acknowledges that the current proposal excludes peer-to-peer transactions and doesn't compel intermediaries to identify non-customers. They remain prepared to defend these principles should the scope of the planned remittance tax expand further.
